Questions You Must Ask Before Applying For A Home Mortgage

For most people, raising the money for the 20 percent down payment that is typically paid on the purchase of a home doesnt come easy. The good news is that there are quite a few low down payment mortgages available nowadays. When deciding on a mortgage plan to go for however, you should determine if 20 percent is indeed the standard rate.
In order to qualify for a conventional mortgage, lenders usually require a minimum down payment of 20 percent. If you cannot manage to make the 20 percent down payment, you will probably be required to purchase Private Mortgage Insurance or PMI. The cost of PMI is usually equivalent to one half of 1 percent of the selling price of the property, and is intended to protect the mortgage company if you are unable to pay back the loan. Your overall mortgage costs will therefore be less if you come up with 20 percent down and can avoid having to pay PMI.
What if you put down less than 20 percent? If you are unable to make the 20 percent down payment, purchasing PMI may be your next best option. The good news is that you may be able to get the mortgage lender to cancel PMI when you attain 22 percent equity in your home, or even 20 percent equity if you have a good record of making payments.
An alternative is to apply for an 80/10/10 loan. This type of loan will save you from having to purchase PMI by paying half of the 20 percent down payment with another mortgage plan. The way it works is that 80 percent of the purchase price of a home is financed through a first mortgage, 10 percent through a second mortgage, with the final 10 percent coming from the down payment. You may also pay off the 20 percent down payment with an FHA loan that you secure from the government. This last alternative will still require you to pay for insurance, but in most cases a down payment of as little as 3 percent will suffice.
What about the possibility of purchasing your home without having to make any down payment at all? It is possible to finance 100 percent of the purchase price of a home with a mortgage that requires no down payment at all. The downside is that these types of financing plans will entail much higher interest rates than typical mortgage arrangements. This will of course result in higher monthly payments for you. Furthermore, you will still be required to purchase PMI since you were not able to pay the required 20 percent down payment.
Let us look into other payment alternatives available to you. When trying to determine how much to put into the down payment, you should explore your various options in order to find a plan that will best suit your circumstances.
Q: Are you interested in gaining equity as soon as possible and thereby decrease your monthly costs? If so, paying the 20 percent down payment is your best alternative.
Q: Are you unable to come up with a 20 percent down payment but want to avoid paying PMI? An 80/10/10 loan may then be your best option.
Do you want to buy a home as soon as possible in order to avoid the rising costs of home purchase but can only afford a 3 to 5 percent down payment? A: Maybe a government insured FHA loan would be a good answer.
Are you unable to raise enough money for any down payment but are willing to incur the extra expense of a no down payment mortgage plan? You may be able to do this if you are fully confident in your ability to make the payments and to secure a better mortgage plan later on down the line. The important thing is to evaluate your own situation carefully before you decide how much to put down on a home.

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by: marciafreeman
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